LANSING, Mich. — State Sen. Patrick Colbeck, R-Canton, joined his colleagues Thursday in voting for Senate Bill 401, legislation that would reform the public school retirement system.
The passed reforms honor previous retirement obligations, provide school employees with long-term stability and provide taxpayers with peace of mind that future generations will not be saddled with a growing unfunded liability burden.
The bill is focused upon the benefits promised to new school employees and not retirees or current school employees. The bill would not change the pensions of current employees or retired school employees currently enrolled in a defined benefit plan. It would increase the employer match by 1 percent of salary for current employees who were already enrolled in a defined contribution plan.
The bill stipulates that all newly hired school employees would be enrolled into a 401(k) plan, with the option of opting out of that and instead participating in a new hybrid pension plan. Under the 401(k) plan, the employer would contribute 4 percent of salary, with the state also matching up to 3 percent of salary from employee contributions. This 401(k) plan would provide the same benefits provided to all state employees, including legislators and their staff, dating all the way back to 1997.
“These reforms will finally put the state on a path toward $0 in retirement system liability and will align the retirement compensation of newly hired school employees with that of 83 percent of private sector employees,” Sen. Colbeck said. “Pension reform is one of those public policy issues that only gets worse and more difficult to solve the longer we wait. The true beneficiaries of SB 401 will be the students of today who will not be saddled with an ever-increasing debt from yet another public pension system.”
Despite billions of dollars directed toward the current school employee pension system out of the School Aid Fund each year, the pension system is still $29 billion underfunded. As more school employees go into 401(k)-style plans, this taxpayer liability will get closer to $0 as the state attempts to direct 100 percent of the School Aid Fund into being focused on the classroom.